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Balancing competing needs

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IT IS hard to fault Massmart CEO Guy Hayward’s comment that exclusivity provisions in shopping mall lease contracts are “intuitively anticompetitive”, other than for being guilty of understatement.

In fact, from the perspective of the layman they are expressly anticompetitive — retailers demand such exclusivity as a contractual condition before committing to a mall as anchor tenant precisely because they wish to exclude competitors. They have never pretended any different.

Yet anticompetitive behaviour is illegal in principle, and since it is a basic tenet of our legal system that the law cannot be superceded by contract, in theory lease agreements that include exclusivity provisions should not be worth the paper they are written on.

However, last October Shoprite was granted an interim interdict banning Massmart’s affiliate Game from selling certain food products at Hyprop Investments’ CapeGate mall in Cape Town on the basis of an exclusivity contract, and earlier this year Pick n Pay instituted similar legal action at CapeGate and at Liberty Group’s Midlands Mall in Pietermaritzburg.

The reason for this apparent contradiction is that it is not as clear as might be expected that restrictive lease agreements are illegal. The Competition Commission spent four years probing the issue and concluded there was insufficient evidence to meet the tests set out in the Competition Act for anticompetitive effects, although it was apparent the practice raised barriers to entry into the grocery market.

Massmart disagrees with this conclusion and is in effect asking the commission to reconsider. Cliffe Dekker Hofmeyr competition director Chris Charter, who is advising Massmart, makes the point that even if there were “some justification for limited exclusivity when mall culture was in its relative infancy”, and landlords and large tenants needed to share development risks, now that the South African retail market has matured that justification no longer applies.

On the other hand, whose interests would be served if exclusivity clauses were banned and as a result retailers such as Shoprite and Pick n Pay became less keen to open new stores? It is unlikely to be those of the consumer, which would raise the question why the Competition Act was promulgated in the first place.

First published in Business Day on 9 September 2014

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